The phone company “Talk-fast” is entering the market which is currently divided among several other phone companies setting a price equal to 100 Euro,
30 (profit) – 25 switching costs – goodie ≥ 0.
The formula for this case was derived in the lecture where we have seen that the costs for switching need to be smaller than or equal to the difference in profits minus the goodie provided. In this case Talk-fast’s switching costs are 25 Euro per consumer and the profit increase from a new customer is 30 Euro. So, how much would Talk-fast be willing to spend at most in the form of a goodie? To fulfil the inequality above, the goodie must be at most 5 Euro (30 Euro – 25 Euro).
